Prerequisites:

• Intermediate Microeconomics (ECMB02H or ECO200 or ECO206),
• Intermediate Macroeconomics (ECMB06H or ECO202 or ECO208),
• Statistics (ECMB09Y or ECMB12H or ECO220 or Equivalent courses from Statistics)

Course Description:

This course is comprised of 3 main parts:

• Individual decisions under uncertainty
• Asset pricing
• Market Efficiency

Goal:

My goal is to deliver a broad but rigorous introduction to the theoretical foundations of modern financial economics. Your goal is 1)to have a good understanding of the theories covered in the course and 2)develop the linkage between financial theories and various economics models you have been studied in your previous economics classes.

Upon completion of this course, students will be able to:

• Calculate equilibrium asset prices
• Determine equilibrium portfolio allocations given price and risk preferences.
• Be able to tell how risk allocations and asset prices will change as the characteristics of uncertain outcomes change.

Course Structure:

Readings:

The main readings are the lecture notes. In addition, as the course progresses, I will update you about the precise supplementary readings that you may want to do prior to the midterm and final. The first priority, however, is to master the lecture notes provided in the course website.

Important Dates:

Grading:

Main Textbook Reference:

Thomas E. Copeland and J. Fred Weston, Financial Theory and Corporate Policy, Addison Wesley, 2005 Fourth Edition (available in the Bladen library Short term loan, type "ECMC49" in library catalogue course reserves). The course's materials are mainly from this classic textbook. However, it is not mandatory to buy the textbook.

Other places where I draw course materials from:

• Bodie, Kane, Marcus, Perrakis, Ryan (2005), Investments, 5th Canadian Edition, McGraw-Hill.
• John C. Hull (2004), Fundamentals of Futures and Options Markets, 5th Canadian Edition, Prentice Hall.
• Brealey and Myers (2000), Principles of Corporate Finance, 6th Edition, 2000, McGraw-Hill.
• Chicago Board Options Exchange website
• Options Clearing Corporation website
• Options Industry Council website

Problem sets:

There will be assigned questions for each topics covered. You do not need to hand them in for grading. But previous students performance has shown that those who had tried them out performed relatively better in the course. Ideally, you team up with one or two of your classmates to form a study group to try the assigned questions.

Appeals:

If you appeal to re-grade the midterm, please submit your complaint to me in written format. I will re-grade not only the parts that you have complained, but also the other parts that you have not. Note that this may lead to a lower overall grade.

Missing the Midterm:

If you miss the midterm due to an approved reason, you must submit official documentation either to me or to the department of management within one week of the missed test. For medical reason, you must provide a signed and detailed copy of the UofT student medical form from the following URL:

http://www.utoronto.ca/health/forms/medcert.pdf

For any other reason, such as time conflicts among tests, please come and see me before the midterm to get approval.

Approved students will have 100% of their grading weight shifted to the final. Non-approved students will have 25% of their grading weight assigned as zero.